Araxi Limited (AXX) Earnings Call Transcript & Summary

Someone is sitting in the shade today because someone planted a tree a long time ago, so says Warren Buffett. Good afternoon, and thank you for joining the Capital Appreciation interim results presentation. Indeed, it is about planting trees and it is about planting trees so that others can sit in the shade. My name is Howard Feldman. I head up Marketing and Communications at Synthesis Software Technologies. On behalf of Michael Pimstein, the Executive Chairman; Bradley Sacks, Chief Executive Officer; Alan Salomon, Chief Financial Officer; Michael Shapiro, Head of the Software division, and Donn Engelbrecht, Head of Payments, it is my privilege to welcome you here today. A very, very warm welcome as well to Amanda Dambuza who has joined the Capital Appreciation Board of Directors effectively today. Amanda is the CEO of Uyandiswa, which is a management and technologies consulting firm, which she started in 2013. Welcome also to the other members of the Capital Appreciation Board of Directors. The agenda is a very, very simple one. I'm going to hand over to Brad Sacks, who's going to take you through part of the presentation. He will then hand it to Alan Salomon for the financial presentation, after which Brad will wrap up the formal part of the proceedings. There's an area where you can ask questions. We're going to try and get to them or to as many of them as we are able. I might consolidate a few of them. But certainly, in time and in the time permitted, we'll see how many of those we can answer. So please go ahead, ask your questions. If you aren't, if I don't get to them or if you think of things afterwards, please always e-mail us, [email protected]. So without further ado, a warm welcome from me, and I'm going to hand over to Brad Sacks.

Thanks, Howard. So welcome, everybody. Today, we are going to walk through the results for the first 6 months through the end of September. And you can see that over a period of time where we have head the company for probably 7 years now, we have grown the portfolio of businesses and initiatives under our umbrella, the most recent one being asset pool, which we will talk to towards the end of the presentation. But we are very pleased with the way things are going. Overall, the businesses are each doing well. They are performing consistent with the secular growth trends that are affecting each of the sectors in which they operate. We are fortunate to be operating in areas where there is a large market opportunity and the market opportunity is not only South Africa, but rather international as well. Our success is a result of having really great partners, blue trip clients with whom we have had long-term relationships and whom we continue to cultivate and try and bring on board more clients as time evolves. This has given us a track record of leadership. And to Howard's point of planting trees, we have a deliberate focus on investment in the future. Some of the investments that we're making today in terms of costs that we are incurring in product-related initiatives, we'll only see the revenue fruits in future periods, but we are doing that in a very deliberate basis. Our businesses are cash generative, and you will see how generative they were over the course of these 6 months. And we are very pleased that even in a very difficult market environment, and it truly was a difficult period, and I think is going to continue to be so. Our businesses are very resilient. We have a healthy balance sheet. We are completely debt free, and we have a sizable amount of liquid cash assets available for investment to pursue our organic growth strategy and make acquisitions. And so, we think that we have a very strong foundation on which to continue our growth trajectory. These results, I would say the performance was satisfactory. It presented a few issues. But in the main, we are generating good top-line growth. Terminal estate was up 9%, payments division is generating annuity revenue up 24% from the prior year. The software revenue that we are generating in our software division is up 31% year-on-year, with international revenue being up 21%. Those are all good indicators of continued demand for our products and services. We have continued to expand on our competencies in the cloud area, adding the AWS migration competency. And we have integrated the Dariel acquisition, which we walked through in our last set of results. We benefited this period from a reduced expected credit loss provision that we had this period versus what we incurred last period. And cash flow from operations was up a really tremendous amount, 55% to ZAR 160 million. That is 87% of the cash flow from operations that we generated for all of fiscal year '23. These are indicators of a very good, solid, well-performing business, and we are pretty pleased by that. We can't ignore the economic environment in which we operate, and those conditions led to 2 things. One was the delay in internal orders, which we had hoped would come through in this period, but they never. And the second was the commencement of new projects in our software division. There were delays in those commencements. We had anticipated that we would do even better than we had done in terms of revenue growth, indicating previously that we had done a 31% increase in revenue. We thought we would do more. And we planned to do more, and we incurred the costs associated with that, and that had a negative effect on our margins which you will see. But we have ZAR 500 million of cash available and very pleasingly, we are confident about what the second-half will yield, and have declared a dividend of ZAR 0.425 for the period, which is flat with last year. And our headline earnings was down just slightly from what we posted last year, but for reasons that we understand, and we are not at all concerned about that. So in terms of what we are doing within payments, you can see that the terminal estate has grown nicely in a very difficult environment. That's up 9%. Our annuity revenue within payments is up 24%. It now comprises just under 60% of our payments revenue which you can see on the top right-hand quadrant, the mix of the different revenue streams that we have within payments, which is nice to see the diversification. On the bottom half of the chart, you can see the effects of the increase in the rental estate that we have. Our rental income has doubled, and we have had a reduced number of terminal sales which we understand the reasons for. In software, you can see the level of growth that we have enjoyed. We are very pleased by this. Software Services and Consulting was up 42%. It was this number that we actually had hoped would be even higher. The software and licensing and subscription fees are up [ 30% ]. Our international revenue is up 21%. And taking into account the Dariel acquisition, the software revenues for as a segment was up 31%. The prepositioning of the resources for opportunities that we anticipated is what you're seeing in the bottom right-hand quadrant, where our EBITDA margin is down because we had incurred the cost without generating the revenue in the period. But we are comfortable that we have got those issues now under control. And some of the projects that were delayed have started to be implemented, and we expect a return to a more normalized level of profitability in the periods going forward. So in the past, I have spoken about what the drivers are for the demand in our businesses and why we are pleased about the sectors that we're in and everything is going digital. We've seen that from the beginning of COVID. It has continued, it is occurring in all industry segments, and we are the beneficiaries of seeing those benefits in the payments and the software sector in particular. But you don't need to listen to me as to what we're seeing the trends are. You can listen to the words of our clients, the banks themselves. There was a recent article in Moneyweb as recently as November 13. And I've taken 3 quotes here from 3 banks; Capitec, Absa and FNB, all talking about the effects of digitalization on their businesses and their customers' expectations for them to provide a digital-rich offering. And so it's those factors which are driving demand for the products and services that we provide within the Capital Appreciation group. In [ net vein ], we are not only seeing the demand in the areas where we have been active in the past, we are continuing to grow sectors in which we operate, particularly with the result of the Dariel acquisition. We are expanding beyond financial services, retail, health care, telecom and logistics. And now we also have a presence in mining and hospitality. And hopefully, over time, we will continue to be able to expand on the activities in those areas as well. These services are in demand, not only in South Africa, but in jurisdictions around the world that we are active in 20 countries at the moment. To give everybody an update on GovChat, so we have incurred an expected credit loss provision of ZAR 9.4 million for this period. But more importantly, we are going to see a much reduced amount in payments going forward. We have effectively terminated all operations and have reduced the ongoing operating costs of the business to an absolute minimum. There are going to continue to be some legal expenses that we'll continue to incur which I will get to in a minute, but going forward, the credit loss is going to be minimal. On the Meta Facebook matter, which is the litigation that we've spoken about, the Competition Commission found that Meta had abused their position of market dominance and is prosecuting the company in front of the tribunal. We as GovChat were granted leave to be an intervening party alongside the Competition Commission in front of the tribunal. This was something that Meta opposed, but we are pleased that we will be there in partnership with the Competition Commission in its prosecution of Meta. We have agreed with other interested parties to sharing those costs, so Capital Appreciation is not going to be incurring those costs on its own. As part of that, we have also agreed that our participation in the damages award has been increased from our pro rata interest of 35% to 50% of the recovery with a preference given to the loans that we had previously made to GovChat, which were secured by the shares and the intellectual property. So we believe that there continues to be a good prospect of recovery under the Meta claim, and we will continue to pursue that over the course of the next number of months. From a governance and social responsibility perspective and [ BEE ] is something that we have always placed importance on, you can see that we continue to strive to improve our position. We are at a group level -- currently level 2, and we will continue to do what we can in that realm. From a board and succession planning perspective, I too would like to welcome Amanda to our board, formally. We saw the retirement of Charles Valkin in October. And you can see that the structure of our board is well represented between executives, non-executives, male, female, peoples of different ages and of different races. From a succession planning perspective within the organization, we have done a lot over the course of the last year. We have reorganized our payments division under the leadership of Donn Engelbrecht and that is working exceptionally well. You'll see the positive results of Donn's leadership in the EBITDA margins that we've been able to generate within payments. In software, we have officially appointed Mike Shapiro as the Head of Software, and we are doing that throughout the organization, including within the Capital Appreciation executive team, which is something that we continue to consider. From our strategy and execution point of view, this is a slide that we have put up since the very beginning. We have not changed our strategy at all. We think it is working well for us. And we think our partners enjoy the level of innovation and more importantly, fanatical attention to detail on execution. So when we look at the payment sector, just to give everybody a perspective on the market and where we think we're going, this is data, which we have given a version of in the past, talking about what the prospects are for growth in terms of terminals and card digital payments. It is a market with continued growth prospects and one that we are happy to play a leadership role in. In terms of terminal demand, it's always a question as to whether or not terminals are still necessary. The Nielsen report demonstrates that the largest market of growth is the Middle East and Africa, then there were about 9 million terminals that were shipped in 2022. We continue to believe that the demand for terminals exists and will continue to grow, particularly in the markets in which we are active, with the U.S. being probably the most saturated of all. From a payments division perspective, I think it's really important when you think of where our growth will be coming from is to understand the full breadth of the solution-set that we offer. We are not just merely a device provider, which is a question we often get. The value in making the device work well is in the software. And software is an area we have specific expertise. And in fact, we are doubling down in our activities around software because it gives rise to good annuity revenue at good margins. But we also provide logistics and activations of managing fleets. We provide assistance by way of call centers to our clients. We have a really state-of-the-art workshop for repairs, and you will all be invited to come and visit that as you'll see in a few slides. We provide our own network services with respect to SIM cards, and we provide asset management services to our clients to optimize the estates that they have of devices across the country and in some instances, even outside the country. So what are the drivers of terminal demand as we see them that will help us grow our revenue within payments as the base case around terminal cells? There is a growing demand and a growing market. As the devices become more functional and as the devices become more cost-effective, you can increase the footprint of retailers who can take advantage of these devices. The enhanced technology that is being introduced through the Android platform, increases the attractiveness of devices to merchants. It allows us to add incremental software solutions which help the merchant, help the customer, and that is a reason there is a concept called terminal envy, everybody has phone envy, want an iPhone 15 versus an iPhone 13. The same is true in devices. There is a regulatory compliance issue around Visa, MasterCard, which they call EMV compliance. And so terminals that are long dated need to be replaced. And particularly in the South African environment, there are the old 2G and 3G networks that are going to be deprecated. The timing around that is a little bit uncertain. There has been no further update that I'm aware of since the last time I mentioned it to you, but there is a big cohort of terminals that will need to be replaced to become 4G and 5G compliant. Our strategy within our payments division is to continue to grow the market for devices by making available new solutions on new, more [ tripful ] purpose device types. We will continue to take market share in established segments. I think we have done quite nicely in that regard, and we'll continue to pursue that. Our existing clients are ones we are going to continue to support as they expand their operations. We are very focused on the 2G and 3G network deprecation. We are looking at new clients. We're looking to enter new markets across Africa. And from a software perspective, we are continuing to innovate and develop new solutions. And that is going to be key to our continued growth. From a software opportunity within payments specifically, we have entered into an agreement with the ACI Worldwide. ACI is the provider of postilion switches. Postilion is the switch that most banks and many retailers in South Africa use to facilitate their own transaction switching. We are now going to be a development partner for them. The maiden initiative is to create a universal retail solution, but this has global applicability and we are going to do this jointly with them. We have continued to evolve the Halo Dot solution. We now have it in 4 types. We have it as an embedded SDK. We provide it as an app-to-app payment capability. There is a fully fledged white label app that is available, and we provide a turnkey solution on a Software-as-a-Service basis through Dashpay Glass. It has application across lots of different opportunities, and this is something that our team is continuing to pursue. I will admit that the evolution of the rollout of Halo has been a little bit slower than we had hoped for, but we have gone live with a second telco in South Africa which was just recently launched, and we are continuing to pursue incremental opportunities around that. From LayUp, I will give a quick update. It's still early days. Here's a year-on-year comparison. The numbers are off small bases, so we can't commit to doing the same each period. But the number of merchants accepting it is up tremendously. The completion rates are really high. The return rate of customers coming to use the solution again, is high. Most recently, if you follow LayUp on LinkedIn, you will see a level of a summary that was provided on the Black Friday experience. There were some really high-value transactions that were done, the highest one being for over ZAR 400,000, which is an unbelievable statistic given that this is a credit solution, but we are not providing any credit exposure at all. So, the success has been the rollout in organizations like Pick n Pay and Dial a Bed, and you can see the different companies on the right-hand side. So hopefully, this will continue to grow. And interestingly, the LayUp solution allows for collection of value at more than 275,000 locations countrywide. So that national footprint is really powerful. As I said, we are going to invite everybody to come to our payments facility to see what we do, where we do it. And we are going to send out invitations to investors for Tuesday, the 30th of January, so please mark your calendars, and you will come and enjoy some of our hospitality. So the software division is next, and the software division has really grown and matured in measurable ways since we first started Capital Appreciation. We started with Synthesis. And you will know that 2 years ago, we acquired Responsive and most recently, Dariel. This now gives us a group of companies that have people in excess of 520 staff, the vast majority of which are engineers. They have focused on technology development and innovation, servicing our clients with a level of enthusiasm which is hard to match. So 25 years of experience in the instance Synthesis, 22 years at Dariel, and I think we stand competitive with the best in the world in terms of ability to deliver innovative solutions and capabilities. The growth strategy for a company with this pedigree is boundless. And we are going to continue to leverage the partnerships that we have developed; AWS, Confluent, GCP, which is the Google Cloud platform. We have opportunities to do that as we have with others, both domestically and internationally. Our proprietary software that we've developed, we will continue to license that and grow that activity. We have increased our international presence in a very measured way against the South African cost base, and we're going to continue to do that. We think it's prudent and starts to expose us to international markets. We are continuing to invest in emerging technologies. This is the planting of the trees for the shade that will come in the future. Generative AI and Web3 are the 2 areas that we have exposed you a little bit in the past where we will continue to innovate, which is how we lead. And we will continue to look for opportunities to broaden our solution-set and expand into new industry verticals or deepen our presence in verticals where there is an already existing presence. In terms of the margin pressure that we spoke about, this is something that the team is very on top of. We have taken some pretty active steps to deal with this. Our hiring this year has been quite judicious. We are matching it up against the demand that we have as opposed to hiring in advance of the demand, which is what we had done in the past. We are able to balance our resources across the entire organization with a team of over 500 now within the software division. We have used this period of time for training our staff, which is really important on new technologies and areas of exploration, R&D, and we continue to look for other ways to continue to accelerate bringing on of the revenue. So in terms of Synthesis, you have seen on numerous occasions, and we talk about the capabilities, but they fit into 6 board areas. The ones that are growing the fastest at the moment are cloud, data and digital. Within payments, there is a central excellence. It's more on wholesale payments than it is on consumer and retail payments. We have the consulting division and the RegTech is where Synthesis's pedigree lies, and is an area that they have been expecting for a long time. Responsive has a very simple [indiscernible] and to focus on a seamless user experience, which enhances the value for the underlying client, and they have done that exceptionally well. Dariel is the company we acquired just recently. The integration has gone very nicely. The Dariel proposition is focused on engineering best practice. You can see some of the clients that are now added to our portfolio and under our umbrella. We're delighted to have Life Healthcare and [ City Lodge ] those are sort of newish areas for us and Sibanye-Stillwater. The labs area is our area of innovation. This is where we spend a fair amount of money on R&D. We have exposed due to some of the areas around Web3 and generative AI. There are a number of different projects that have been done in proof of concept. Some of these are available through the Synthesis website that you can go and experiment with a little bit and see what we're doing. But ultimately, this is where we are trialing new technologies, trialing new products, determining whether or not there is client and market fit. And if to the extent that there is, this is where they will be based. Asset pool is a company that we invested in at the beginning of this year. Asset pool as the language says on the slide, is a cloud-native business-to-business, Software-as-a-Service platform. It is focused on asset management, tracking, maintenance, compliance and verification, which is an area that has huge importance in all industrial areas. And the reason we invested in this company is because it is based on the AWS, [indiscernible] than what they had in the past. And more importantly, they generated a 3x ROI on their investment in just 3 months. So one of 2 things is true. Either we charge far too little or there was so much fraud that they were able to eliminate that their results are quite compelling in that regard. Capitec did some work with Responsive where we introduced a solution called Optimizely, which helped focus on optimizing the experience of users of the Capitec banking app. And if you have a look on the right-hand side in the bottom quadrant, you can see the benefits that they were able to derive. And if anybody follows Capitec Bank, you will have heard from their own results, the positive experience that they talk about in the users' experience on their banking app. And so the last example was the deployment of Halo, which is available on the Google Play store for one of South Africa's leading telco providers, providing a tech on phone solution for accepting payments.

Performance in a high interest rate and low economic growth environment in South Africa. We have consistently said that Capital Appreciation is in an industry with strong underlying growth trends and a large market opportunity for our businesses. We are pleased that we can demonstrate the outcome of this demand in this set of results through the growth rates achieved in multiple areas of our core businesses. However, what is also evident is the delay on the side of our customers to temporarily commit capital in an uncertain economic environment. We are proud of the resilience and stamina of our businesses and have exhibited in a challenging 6 months, which we have successfully finalized and commenced the integration of Dariel into our software division. We've continued to attract new blue-chip customers. We have acquired further skills and competencies, developed and launched new products and services and most importantly, made excellent progress in further diversifying our revenue streams. We are particularly pleased with the 55% increase in cash flow from operations, again, reinforcing a cash-generative nature and effective asset management of the group. The detailed disclosures in our presentation today will assist you in comparing our results with last year's performance. These results reflect the first-time inclusion of 3 months trading results for Dariel with credit loss raised as we believe that this more accurately illustrates the underlying operational performance of the group. It is important as non-headline earnings in September 2022, which was subsequently changed for the audit at the year-end 31st of March, 2023 results. And turning to each of the underlying divisions. I will now start with the payments' performance. Revenue in the payments division decreased by 16.7% to ZAR 265.3 million. The decrease was attributable to lower terminal sales, a function of customers choosing to temporarily postpone new terminal orders due to unfavorable economic conditions or choosing to acquire terminals through long-term leases as an alternative to outright purchase, which has been a consistent practice for a number of years. The terminal estate nevertheless, increased 9% year-on-year to 344,000 terminals, which generated a commensurate growth in maintenance and support fees and other annuity revenue. The leasing of terminals is a growing trend in the market and has led to terminal rental income doubling in this period. The change in the portfolio-mix towards lease terminals is expected to have a beneficial profit impact over the longer term as it generates more stable annuity income and additional sources of revenue in the form of maintenance and support services for terminals as well as increased value-added transactional activity and software license fees. The division's strong positive cash generation will allow it to comfortably fund internally the growth in the rental book. The growth in rental assets will, however, initially decrease current revenue and EBITDA in the payments division until a consistent sales [ rating ]expenses. This contributed to a stable EBITDA of ZAR 117.5 million compared to September, 2022 of ZAR 119.5 million. EBITDA margins improved from 37.5% to 44.1% due to economies of scale, improved productivity and operating efficiencies. The division's new 5,600 square meter terminal repair center and production facility in Linbro Business Park is an enviable facility with world-class capabilities to further scale the business. The operational efficiencies of the new environment are really evident in the unit's operating margins. Payment continues to be a very strong cash generator in line with the asset-light businesses. I now look to payments revenue composition. The payments business has diversified its revenue streams over the past few years. This is a notable de-risking factor. Annuity income has overtaken terminal sales as the major contributor to revenue, now comprising 59% of total payments revenue. The increase in contribution is both a function of the excellent growth in annuity income as well as the lower contribution from terminal sales. Developing alternative revenue sources in the form of higher-margin value-added Software-as-a-Service solutions is a key strategic focus area for the payments division. The growing adoption of Android devices has led to strong customer demand for payment-related software solutions to fully utilize the capabilities of Android devices and the payments division has increased its focus on the development and licensing of proprietary software and payment solutions to capitalize on this need, which grew transaction-related income estimate of terminals in addition to organic growth. The growing demand for software solutions is an exciting development, and our new initiative [ affected ] good top-line revenue growth with significant increases in cloud, data and digital consulting services. Like-for-like revenue growth was 8.6% and 31.2% as the 3 months of Dariel were included for the first time. Revenue growth was nevertheless materially lower than expected. Timelines for closing new opportunities, especially larger projects have been significantly protracted as customers evaluated the return-on-investment metrics given the current economic environment and budgetary pressures that we are facing. Software had committed skilled resources to service these projects in anticipation of their startup, which is the consistent model the division has adopted for many years. The delay in the closure and the onset of the revenues against the committed employed cost base, created pressure on profitability and caused margins to contract. EBITDA in this division decreased by 12.6% to ZAR 39.8 million. Management expects the delay in commencing major products to be temporary as most projects are mission critical and strategically important to the division's major customers. The acquisition of Dariel and the enlarged highly specialized and skilled resource pool provides a much greater opportunity to balancing the resourcing and optimize the efficiency across the 6 operating companies in the software division. This all goes well for improved operating efficiencies and margins going forward. Certain new key sales opportunities were only concluded towards the end of the reporting period, which affected the opportunity to translate that into revenue within this reporting period. Software will benefit from these projects in the second-half of the year and early into the '24-'25 financial year. The expansion of the resale of security hardware and third-party HSM licensed products and services in recent years has diversified the software division's revenue streams and proven to be a lucrative source of incremental revenue. The growth in these product sets, which attract a budgeted lower resale gross margin does, however, distort the comparability of the division's total gross and operating margin. However, the third-party products have added the advantage that are mostly dollar-denominated and also lead to cross-selling opportunities with existing customers. We believe the opportunities for the software division are exceptional, and we are seeing some encouraging prospects for international expansion. Certain key sales opportunities were also concluded towards the end of the reporting period, which did not translate into revenue within this reporting period, but bodes well for the second-half of the year and thereafter. Now looking at software revenue composition, services and consultancy fees grew by 42% due to the strong demand for cloud, digital and intelligent [indiscernible] projects. Synthesis continued to grow its leading position in cloud migration as an AWS advanced consulting partner. It's capabilities are also being extended to Microsoft, to Xero and Google Cloud Platform, and these capabilities are further strengthened by the Dariel acquisition. Digital is, amongst others, involved in a large multiyear logistics project in Singapore, which has increased the division's international exposure as well as the foreign currency revenue it generates. The business unit has won further projects in South Africa and internationally in the past 6 months. Annuity-based revenue in the form of license and subscription fees increased by 30%. Halo Dot's SoftPOS is progressing, albeit at a slower pace than expected and a contract with a major local telecoms business was activated in the period and will start generating revenue. Security hardware and third-party license fees were resilient, keeping pace with the exceptional growth in the prior year. State-of-the-art hardware security modules, HSMs, are used for enterprise encryption and to protect payment card pins and contactless payments. These HSMs typically need to be refreshed every 5 years. The revenue growth was also supported by a substantial increase in partnership resale transactions during the period. International performance was very pleasing. We continue to achieve good traction in markets outside of South Africa with international revenue growing by 21% period-on-period, which now comprises 13.9% of group revenue. This geographical diversification of revenue streams creates notable growth opportunities for the group. The division remains in the early stage of its development and still incurs development costs, which are expensed. The division maintains a small and focused team abroad while the majority of this hard currency revenue is managed, transacted and executed from South Africa in foreign currencies, providing a considerable competitive advantage with a lower cost base in a soft rand currency. Having proven that the software division can deliver successfully and profitably on large multiyear international projects, using our remote delivery model, there is a continued focus on pursuing initiatives in international jurisdictions. This presents a long-term strategic initiative, a significant upside potential. Therefore, the group is committing more funds to business development and marketing efforts to realize these opportunities. I now look at the group's income statement. In looking at the statement of comprehensive income, there are a couple of items to note. I've already mentioned the group's revenue generation was moderated by lower payments, terminal orders, and delayed projects in the software division. The current period number also includes ZAR 48.7 million of revenue that relates to Dariel. Gross margins for the group were managed well, improving by an encouraging 118 basis points. Operating expenses have increased by 19.7%, which includes Dariel costs and 13% on a like-for-like basis with last year. Investments in growth-related initiatives continued during the period, the relevant benefit of which will only manifest in medium term. The EBITDA margin was negatively impacted by the upfront resourcing of the software division, which had a temporary impact on profit and margins and also continued growth-related expenses. Finance income earned on the group's significant cash balances grew by 60%, benefiting from steady cash balances and higher interest rates. The expected credit loss or ECL raised after tax on the GovChat loan declined to ZAR 9.4 million in this period from ZAR 56.3 million in the comparative period due to lower running costs under business rescue. This benefit both earnings per share and headlines earnings per share. The group has decided to limit further funding of GovChat and other interested parties have agreed to contribute to GovChat's competition tribunal related legal expenses. As a result, future anticipated losses will be materially lower in the second-half of the 2024 financial year. Growth in profit after tax, earnings per share and headline earnings per share, all benefit from the reduced expected credit loss raised. If the expected credit loss raised is excluded for both periods, the illustrated normalized basic earnings per share for the 6 months was ZAR 0.0725 per share compared to ZAR 0.0773 last year. And HEPS was ZAR 0.0726 per share compared to last year's ZAR 0.0776 per share, a decrease on the prior compared 6 months of 6.2% and 6.4% respectively, reflecting the resilience of the group's underlying businesses under tough challenging conditions. An interim dividend of ZAR 0.0425 per share has been declared for the 6 months ended 30th September '23, unchanged from September 2022's ZAR 0.0425. Capital Appreciation repurchased through the market, 12.4 million shares and sold 20.4 million treasury shares to settle vested share incentives during the period. The group also allotted 25.2 million treasury shares to the vendors for the Dariel acquisition. Given the appropriate circumstances, the group will continue to consider future repurchases of shares in the market. Responsive and rethink digital solutions have achieved their profit warranty set as part of the purchase agreement and the previous shareholders will receive ZAR 6.6 million in cash and allotment out of treasury shares of 5.5 million ordinary shares. The period of the warranty was for '25 and newly acquired Dariel assets. The right-of-use assets. We have moved into 3 new leased premises to provide operating -- Capital Appreciation's underlying businesses are very cash generative, delivering a pleasing ZAR 160 million of operating cash flow in the 6 months, relative to ZAR 183 million for the full year last year. Notwithstanding full taxation paid, increased dividends paid amounting to ZAR 49.9 million, further loans to associates of ZAR 10.4 million, the net cash payment of ZAR 14 million for the Dariel acquisition, and share repurchase of ZAR 18.3 million, the group had cash resources of ZAR 486.3 million as of 30th September, 2023 at its disposal to utilize in pursuing growth opportunities and strategies. The underlying businesses generate robust operating cash flow necessary to take advantage of organic growth opportunities available to each of our business units. As a group participating in a high-growth sector of the economy, we continue to invest judiciously with full understanding that for some of the costs incurred, we will only see the financial earnings benefits in future coming periods. Capital Appreciation's cash is invested with South Africa's top-rated banks and interest rate risks are managed very conservatively to maximize yield through appropriate interest rate cover. In terms of its capital allocation, the group remains strongly focused on first and foremost, supporting the organic growth of our divisions and thereafter, acquiring companies that can expand and generate scale within a reasonable time frame, that can provide satisfactory organic growth and returns to shareholders, and where Capital Appreciation's capital and strategic capability can be successfully leveraged. Net asset value, net of trading shares increased by 3.2% in the past year to ZAR 1.245 per share, of which ZAR 0.40 of that is represented in cash. Cash flow, our asset-line businesses remain highly cash generative and can be seen from the ZAR 159.1 million cash generated from operations in this period, up 55%. We have generated more than ZAR 1.33 billion in operating cash flow in the past 6.5 years. This is a notable achievement, and the group's cash flows have resulted in approximately 5-year payback for all the businesses we have acquired since 2017. The key features [indiscernible] cash flow reflecting September 2023 and 2022 periods highlight the maiden cash flow items. I have already discussed the higher finance income received and the growth in dividends and taxation paid. Working capital remains a strong focus. We were very happy with the seamless integration of the Dariel acquisition in the software division, which has now bedded down 2 successful acquisitions over the past 19 months. The group granted LayUp technologies a further ZAR 9.2 million convertible loan facility during the period. The loan bears interest of prime and are repayable in November 2025. The group subscribed for 20% of the equity in Regal Digital B.V in the Netherlands in May 2022 and also granted them a long-term loan of ZAR 9.5 million, which is non-interest-bearing and there's no fixed terms of repayment. Another European-based fintech investor simultaneously invested with Regal Digital on the same terms as Capital Appreciation. There was a ZAR 1.2 million mark-to-market movement on the euro-based Regal Digital loan for the period. The group paid ZAR 72 million in cash on acquisition for Dariel. We had ZAR 32 million in cash deposits on their balance sheet, translating into a net ZAR 40 million cash outflow. Cash and cash equivalents as of 30th September, 2023 were ZAR 486.3 million. Dividend history. We are fortunate to own businesses that can generate meaningful profits and cash flows, notwithstanding a challenging economic environment, and that is after paying full tax. We have consistently paid dividends for the past 6.5 years, generally well covered by current and cash flow from operations. For the current period, the board has declared an interim dividend of ZAR 0.0425 per share, which is unchanged from last year's ZAR 0.0425. Prospects. We are in a strong position to benefit from the exciting opportunities in the growing markets we serve. While our outlook remains dependent on several micro and macroeconomic factors, we continue to feel optimism given the strong opportunity set for our underlying businesses. Looking towards the remainder of the 2024 financial year, our businesses have an encouraging pipeline of projects, and we are confident of positive growth in the second-half of 2024 financial year. We are well with our existing customers and international principles and suppliers and have several exciting products to capitalize on in a growing market. I will now hand you back to Brad. Thank you.

Thanks, Alan. So I am going to take advantage of Alan's description of our prospects and say, I agree with all of that. We are in a good position. The businesses are well positioned, and we're excited about what the future holds for us as a group. In addition to the organic growth opportunities, there are a number of acquisition opportunities that we are looking at, and we will continue to explore those both in payments and in software. So in summary, I would say we continue to enjoy a good position as a leader within the industries in South Africa. We have a culture where we are very focused on leading with innovation because we think that generates good client mind share, not just doing the same thing over and over. And we think it also adds to an enjoyable place to work. So from an employee and team member satisfaction perspective, innovation is really important. We are fanatical about our delivery. And to be a trusted partner, I think you're only as good as your last delivery. So we continue to focus on quality solutions. We have a healthy balance sheet. Our businesses continue to generate cash. We have the money to invest in both the organic and acquisitive opportunities that present themselves to us, and we see a lot of them regularly. And we have been able to put forward a sustainable growth in dividends, which we are confident will generate good long-term shareholder returns. So we are pleased about the position that we're in. We are positive about the prospects for H2, and even more positive about the long-term prospects for the group overall. So with that, I will turn it back to Howard and invite you to send through any questions you may have. Thank you for joining us.

Thank you, Brad. Thank you, Alan. If I could also ask Michael Shapiro as well as Donn Engelbrecht to join us back on the screen. We do have a number of questions. I am consolidating them, and we'll try and get through as many of them as we can. I'll give you their e-mail address afterwards in case we don't get to them or if you do have further questions. Michael Shapiro, good afternoon. How are you doing?

Very good thanks, Howard.

So Michael, this one is for you, Cornelius asking, at what percentage of software revenue growth was due to Dariel?

Thanks, Howard. Just to remind everyone, the Dariel acquisition took place in July of this year. The Dariel team is a great addition to our software division. And they have a very similar culture to Capital Appreciation and the Synthesis team. They have a great name in the market, a very strong brand and fantastic engineering skills that complement our team. As Alan mentioned in the financial section, in our detailed disclosures, we do break out the Dariel contribution to this half year's reporting. But just to specifically talk to that, of the division's ZAR 288 million of revenue that was generated, ZAR 49.7 million was contributed by Dariel. In terms of EBITDA contribution, they did contribute ZAR 9.7 million to the division's EBITDA. They'll continue to operate as an independent entity while they fulfill their warranty obligations all the way through to March, 2025. Thank you.

All right. Michael, whilst you're here, this question's just in. If you don't mind staying, I can just ask you that. In terms of software, the operating margins of the business have declined as the business scales. When do you see this equaling these margins bottom and recovering?

As Brad mentioned upfront, we did have conditions precedent in this particular trading period, whereas per previous trading periods, we typically build up and invest in capacity of our teams. We're very much a people-focused business, and these are very highly qualified and high-demand skills. So we invest in building up those skills in anticipation of the project work kicking off. We also have made some smaller investments in various initiatives similar to our Halo Dot technology, where we hope to build software that leverages and creates economies of scale going forward. But this period, we did have some delays in the start of those projects which did impair our margins. So we do hope that in future periods, we'll start seeing a normalization back to the operating margins that we experienced historically. But we must say that given the global demand for our products and services and the local demand, we will continue to make investments in people and continue to grow the capacity of our team. But particularly, we'll be focused on a very judicious manner to ensure that we equalize these profits.

Okay, great. Thanks, Mike. Donn, if I can ask you, payments revenue was down, but you have maintained margin. Where did this come from? Was it cost efficiencies? And what can you do moving forward?

Good afternoon, Howard, and an excellent question. I think before I answer the question, just to add to Brad's last comment talking about our innovative DNA, I think it's also important to note that the payments team is a team that they absolutely love what they do. They love serving their customers and we've got a passion for what we do. To come to your question, the net result of what we've seen between margin and revenue is a combination between operational scale, efficiencies as well as a deliberate strategy to migrate into a more software-type business. What do I mean with that? And what have we done? As we've shared previously, many of our customers have adopted a [ dual ] vendor strategy, and we soon realized that the heart and the crux of the payment world is the software within the devices. And we've also realized that if we do not realize the sale, what can we do about the software? We've recently been successful in 2 software proposals whereby we did not sell the devices, but it's our embedded certified software that will operate within those devices. And those 2 customers is one of our banking customers as well as a large fintech group. So we remain optimistic. We believe there is more to come because Android also enables and gives you the platform to create a far more contemporary platform opposed to old Linux devices.

Great. Thank you, Donn. Alan, if I can ask you this question. What is the management's view as to the reason and your view as to the reason that the share price has not grown, but actually has dropped?

We issued a pre-closing business update, a transparent pre-closing update on the 31st of September, where we indicated that economic conditions were particularly tough for the reporting period. And I think there may have appeared to have been a bit of an overreaction to the closing business update. When we released our trading statements about 3 weeks later, I think the market was much more confident that the expectation of the drop in earnings was going to be -- was evident, it was less severe than what actually was anticipated in that pre-closing update. I really don't understand why the market reacted so significantly because for the share to have taken such a particular drop in anticipation of the release of results was surprising to us at management.

Okay. Thank you. And a question for Brad. Brad, if I can just ask you, Cornelius again asking international revenue was up 21%. Is that all from Responsive?

Only a small portion of that is from Responsive. The largest portion of that is from the Synthesis activities internationally. There is a little bit that is reflected from payments, but the vast majority is from Synthesis.

All right. And Brad, I always love asking you this question because it just gets an insight into your thought process. What excites you most about this business?

Howard, if you've asked me this question before, I obviously haven't satisfied your curiosity.

You know what you've answered a different -- and you probably enjoy that as well, which is also cool.

So what's really exciting, Howard, is that we are really at the forefront of technology and its evolution. And I think what we excel at within the group is not trust in technology, but in finding ways to apply technology to business problems and deliver value. And that truly is exciting. So when I get on the phone with the labs team, I get on the phone with any of the technologists that we have, and we present a problem and somebody says, well, there's really new technology or have you seen what ChatGPT can do around this, or web 3.0 has a solution? And now we've got to get into figuring out streaming payments, a whole host of these things. That's exciting because every day can present new challenges, new areas of learning and we're surrounded by a group of colleagues who are, by definition, interested and curious. And that curiosity is stimulating, not only stimulating to me, but stimulating to their colleagues. And as a group, it presents lots of areas of intrigue. And so that to me is what I enjoy most about waking up on a daily basis and engaging with different people. So they're obviously engaging with you now, which is number one on my list every morning.

Yes, not many would say that. But Brad, that's also actually an interesting question because this is technology, it's innovation. It's changing the world really through technology, but you've often spoken about the people that it might be about technology and innovation, but there's this whole massive, incredible group of people within this group.

The technology is secondary, Howard. It is all about the people because you can find lots of technologies all over the place, but it's the people who bring the technology to life. You have a look at what happened recently at – oh, the names of someone, I'm not going to go down that path. But it is all about the people. It's about taking the technology and making it tangible to solve a problem and that requires people, and that requires conversation. And we're lucky enough to have a really fantastic group of people that call Capital Appreciation home. So my thanks to each of you who are on. And if you're not on, well, you'll have to get this message somehow.

Absolutely. That is going to be where we leave it. If you still have further questions, please can you e-mail them [email protected]. We're going to try. We'll obviously try and get you all the answers that you are looking for. Thank you for taking the time. Thank you to everybody who presented, who answered the questions, those who sent in the question. Some very, very -- really some very good questions which of course, it is our privilege to answer. So if you do have -- if you are going away, if you are having a break, please do so. Have a good one, disconnect from the things that are unimportant and be safe over this period and wishing you all the best for 2024. Have a good day.